How to get the Blanchard-Kahn form from a general linear rational expectations model

Abstract

In this paper, we prove that every linear model with rational expectations can be transformed by the means of an one-to-one mapping into another model which has one of the following properties: i) it is degenerated, ii) it is backward, ii) it has the Blanchard-Kahn form. In addition to sorne simple illustrations, we provide two applications on two nonlinear forward-looking economic models in order to show how to use our theoretical analysis for local stability assessment.